Stakeholder Groups in Lloyds TSB Bank - Case Study Example

Lloyds TSB Bank Overview: Lloyds TSB Bank is one of the largest banks in the UK, providing a range of banking and other related financial services. The bank provides retail, private and commercial banking, investment services, pension management, treasury services, insurance broking and life assurance. It operates primarily in the UK. It is headquartered in London, the UK. (Banking business Review 2005) i) The Primary stakeholder groups of Lloyds TSB typically comprise of shareholders and investors, employees, customers, together with what is defined as the public stakeholder group: the government and communities that provide infrastructures and markets, whose laws and regulations must be obeyed, and to whom taxes and other obligations are due. The successful implementation of the Group's strategy is the responsibility of all 70,000 staff employed by the Group. It is their approach to making Lloyds TSB a high performing organisation that has enabled the Group to make such good progress in 2004 and which only they can ensure further progress over the next few years. Key Employees: Name Level J. Eric Daniels Group Chief Executive (Since: 2003) Michael E. Fairey Deputy Chief Executive Officer (Since: 1998) Terri A Dial Group Executive Director, UK Retail Banking (Since: 2005) Archie G. Kane Group Executive Director, Insurance and Investments (Since: 2003) G Truett Tate Group Executive Director, Wholesale and International Banking (Since: 2004) The focus of Lloyd TSB on their customers has never come at the expense of other stakeholders. They claim that they are constantly striving to make Lloyds TSB a great place to work and a great investment opportunity for shareholders. For shareholders, Lloyds TSB delivered a total shareholder return (share price appreciation plus dividends) of 15 per cent during 2004, a significantly better performance than both the FTSE Bank Index and the FTSE 100 Index. So, 2004 has been a year of good progress for customers, staff and shareholders all of whom are linked by a common desire - the successful delivery of Lloyds TSB's business and financial strategies. (Banking business Review 2005) ii) Lloyds TSB has a clearly articulated organic growth strategy that is focused on improving and deepening relationships with our personal and business customers. During 2004 this strategy has started to gain traction, with good progress being made in each of their business units. The successful delivery of profitable franchise growth has been central to the Group's return to positive earnings momentum during 2004. The building blocks of attracting, retaining and developing customer relationships in all areas of the business are the foundations of profitable franchise development and sustainable earnings growth. With this in mind Lloyds TSB has spent much of the last few years putting their customers at the heart of the strategy, ensuring that customer needs drive their business transformation. During 2004 they have continued to improve the product range, they have significantly enhanced their customer service levels, and have made clear progress in improving the Group's processing efficiency. As a result, customer satisfaction levels are higher than at any time during recent years and they are recruiting a higher number of quality customer relationships. (Banking business Review 2005) iii) The company also provides telephone and Internet banking services. Cheltenham & Gloucester (C&G), a subsidiary of Lloyds TSB, is the group's residential mortgage provider, selling its products through branches of C&G and Lloyds TSB Bank in England and Wales, as well as through telephone, Internet and postal services. The insurance and investments sector operates through Scottish Widows, the group's specialist provider of life assurance, pensions and investment products. These services are distributed through the Lloyds TSB branch network via independent financial advisers and directly via the telephone and the Internet. Insurance and investments also includes general insurance underwriting, broking and fund management. In August 2002, Lloyds TSB Insurance signed a one-year advertising deal worth more than 1m with internet search engine Google. The deal guarantees that visitors to Google will see the campaign at least 10 million times. The work is highly targeted, as the ad only appears when certain key-words are entered in the search. (Banking business Review 2005) IBM sealed a seven-year, $1 billion deal with Lloyds TSB to enhance the bank's voice and data services. The infrastructure will feature a single high-capacity fiber network for voice, data, and video, with direct links to mobile and call-centre services. It included almost 70,000 voice-over-IP telephones. IBM thus, acts as a technology partner. Vanco, a global network operator, provides network-management services, and Vtesse Networks, a gigabit optical-networking provider, supplies the high-capacity fiber network. iv) The following is the list of substitute products classified by the areas of financial services. After this an analysis of the suppliers of these substitutes follows: (Banking business Review 2005) Personal banking: Internet banking, Telephone banking, Current accounts, Savings accounts, Credit cards, Loans, Mortgages, Insurance, Pensions and investments, Share-dealing Business banking: Business accounts, Raising finance, Savings plans, Insurance, Cards Private banking: Asset management services, Private banking accounts, Financial planning services, Estate administration, Trust management services, Currency exchange, Travelers checks service Top Suppliers Alphabetically: Abbey National plc Alliance & Leicester plc Allied Irish Banks, p.l.c. Arch Capital Group Ltd. Australia and New Zealand Banking Group Aviva Plc Banco Popular Espanol, S.A. Bank of Ireland Barclays PLC Bradford & Bingley Plc Brewin Dolphin Holdings PLC Commonwealth Bank of Australia Egg PLC HBOS plc HSBC Holdings plc Legal & General Group Plc National Westminster Bank Plc Nordea AB Northern Rock plc Prudential plc Royal Bank of Scotland Group PLC Current account providers by market share Bank 2005 2000 % point change Lloyds TSB 20 24 -4 RBS Group 18 18 0 Barclays Group 15 17 -2 HSBC 15 11 4 HBOS Group 11 8 3 Abbey 6 5 1 Nationwide 4 3 1 Alliance & Leicester 3 3 0 National Australia Bank 3 5 -2 Other 4 5 -1 Source: Black times for the black horse , By: Bowery, Joanna, Marketing (UK), 00253650, 10/12/2005 v) & viii) Lloyds TSB faces a downward sloping demand curve just like firms in oligopolies but the elasticity may depend on the reaction of competitors to changes in price and output. Thus this concept of demand and supply is explained in relation to the typical firms in Oligopoly. Assuming that firms are attempting to maintain a high level of profits and their market share it may be the case that: (a) Competitors will not follow a price increase by one firm - therefore demand will be relatively elastic and a rise in price would lead to a fall in the total revenue of the firm as the firms supply would decrease. (b) Competitors are more likely to match a price fall by one firm to avoid a loss of market share. If this happens demand will be more inelastic and a fall in price will also lead to a fall in total revenue as a result of consequent decrease in supply. The kink in the demand curve at price P and output Q means that there is a discontinuity in the firm's marginal revenue curve. If we assume that the marginal cost curve in is cutting the MR curve then the firm is maximising profits at this point and at this point he firms demand and supply curves should meet. vi) The primary inputs of Lloyds TSB Bank are labour, that is, its skilled employees and the finance generated from its various services. With more than 2300 branches of Lloyds TSB Bank, Lloyds TSB Bank Scotland and Cheltenham & Gloucester (C&G), the group provides comprehensive cover throughout the UK. It issues both Visa and MasterCard, and is the third-biggest credit card issuer in the UK, with more than five million cards in use. In addition, more than six million debit cards have been issued to customers. The wholesale markets division provides banking, treasury, large value lease finance, share registration, venture capital, and other related services for major UK and multinational companies, banks and financial institutions. The international segment provides banking services abroad in three main regions: the Americas, New Zealand and Europe. (Banking business Review 2005) vii) The banking industry in UK is just this side of an oligopoly. Oligopolies refer to a market structure where an industry is dominated by a small number of large sellers. Four major clearing banks dominate: Lloyds TSB Bank; The Royal Bank of Scotland, which owns Providence-based Citizens Financial Group; the Bank of Scotland; and Clydesdale Bank (Lisa 2001). Also in operation are a number of merchant banks and other financial institutions, such as insurance companies and investment funds. Before 1995, there were just three major players. Lloyds TSB Bank joined the fray after the merger of Lloyds Bank with TSB Group, a combination of the U.K.'s four remaining trustee savings banks, and is now a subsidiary of the Lloyds TSB Group, headquartered in London (Lisa 2001). Oligopoly Market Analysis LYG Pvt1 BCS HBC Industry Market Cap: 47.25B N/A 67.97B N/A 5.66B Employees: 69,985 24,3611 78,400 N/A 9.74K Qtrly Rev Growth (yoy): 120.20% N/A 11.10% N/A 14.20% Revenue (ttm): 20.06B 12.16B1 24.63B N/A 1.32B Gross Margin (ttm): N/A N/A N/A N/A 0.00% EBITDA (ttm): N/A N/A N/A N/A N/A Oper Margins (ttm): 37.57% N/A 44.36% N/A 51.61% Net Income (ttm): 3.72B 154.10M1 5.35B N/A 459.64M EPS (ttm): 1.97 N/A 3.31 N/A 2.44 P/E (ttm): 17.16 N/A 12.71 N/A 12.30 PEG (5 yr expected): N/A N/A 4.56 1.17 1.10 P/S (ttm): 2.37 N/A 2.78 N/A 2.89 Pvt1 = Abbey National plc (subsidiary or division) BCS = Barclays plc HBC = HSBC Holdings plc Industry = Foreign Regional Banks 1 = As of 2004 Source: http://finance.yahoo.com/q/cos=LYG Last Accessed: Jan 01, 2005. viii) Answered with part v) ix) Lloyds TSB recorded revenues of 15,786 million during the fiscal year ended December 2004, an increase of 1.7% over 2003. The increase was primarily attributable to improved performance across the operating segments of the company. The net profit was 2,489 million during fiscal year 2004, a decrease of 25.1% from 2003. (Banking business Review 2005) Consumer lending represents about a third of Lloyds' profitability. The rest comes from wholesale banking (corporate) and life insurance. Both of those businesses are firing on all cylinders. In the first half of 2005, the wholesale banking business saw a decrease in bad debt as corporations in the U.K., like their counterparts in the United States, are swimming in cash. The life insurance business was a very solid performer over this period as well. However, increasing levels of regulation, from both the UK and overseas, have already become a significant burden on all UK financial companies. With the adoption of international financial reporting standards in 2005, this burden is unlikely to ease and the financial services industry in the UK is likely to continue to face significant challenges in the arena of accounting and regulatory change. Whilst Lloyds TSB is well prepared for these challenges, the ongoing cost of compliance will remain considerable (Banking business Review 2005). The focus of Lloyds TSB Bank on delivering profitable franchise growth, against a backdrop of significant regulatory and competitive pressure, has led to a good track record of earnings growth. Despite an expected slowdown in consumer lending growth in the UK, the Lloyds group seems confident that the delivery of revenue growth in excess of cost growth, combined with strong risk management throughout the organisation, will enable the Group to achieve a continuing high return on equity and sustainable economic profit growth. Financial Analysis of Lloyds TSB Bank PERIOD ENDING 31-Dec-04 31-Dec-03 31-Dec-02 Total Revenue 42,889,969 31,194,890 29,270,674 Cost of Revenue - - - Gross Profit 42,889,969 31,194,890 29,270,674 Operating Expenses Research Development - - - Selling General and Administrative 22,132,781 15,008,762 8,551,452 Non Recurring 100,183 78,254 139,583 Others 3,648,980 3,446,733 4,339,902 Total Operating Expenses - - - Operating Income or Loss 17,008,025 12,661,142 16,239,737 Income from Continuing Operations Total Other Income/Expenses Net - - (3,802,428) Earnings Before Interest And Taxes 17,008,025 12,661,142 12,437,309 Interest Expense 10,777,400 7,302,521 8,625,254 Income Before Tax 6,230,624 5,358,621 3,812,054 Income Tax Expense 1,787,885 1,479,712 924,134 Minority Interest (435,412) (46,241) (99,473) Net Income From Continuing Ops 4,007,328 3,832,668 2,788,447 Non-recurring Events Discontinued Operations (34,679) 1,988,363 - Extraordinary Items - - - Effect Of Accounting Changes (1,067,336) (74,697) 20,857 Other Items - - - Net Income 2,905,313 5,746,334 2,809,304 Preferred Stock And Other Adjustments - - - Net Income Applicable To Common Shares $2,905,313 $5,746,334 $2,809,304 Source: http://finance.yahoo.com/q/iss=LYG&annual Last Accessed: Jan 01, 2005. Works Cited Primary Source: Banking business Review (2005): www.banking-business-review.com/companyprofile.aspguid=07EA0807-5616-4769-83C3-9941442AC8FD Last Accessed: Jan 01, 2005. Other: Lisa Biank Fasig (2001) 'She embraces change'. Journal Staff Writers. 4.8.2001 Read More